Porter’s Five Forces:
In the Market Based View of competitive analysis, Michael Porter’s The Five Competitive Forces that Shape Strategy provides the seminal framework for understanding where and how a firm ought to compete.
The Five Forces are:
- Threat of New Entrants – The threat of new competitors entering an industry is high when initial cost, in time or money to enter an industry, is low. Common barriers to entry are:
- Learning Curve Disadvantage – A landscape in which only an expert can compete and training is either restricted or difficult to obtain.
- Economies of Scale – In an industry that compete based on price, businesses that have grown large can drive down operational costs and leverage their market influence against suppliers. Firms competing on differentiation may also take advantage of Economies of Scale tactics to maintain margins and process repeatability.
- Technology Protection – In many industries, such as pharmaceuticals, the cost to do business requires Intellectual Property or significant investment in operations technology that must occur.
- Threat of Substitution – The threat of substitution is high when a product or category outside the industry could fill the demand for a good if supply were short and prices too high (e.g. if coconut water prices triple, bottled water could play the substitute role).
- Supplier Power – The threat of supplier power is high when there is resource or information asymmetry. This is especially true when a consolidated mature industry is the supplier for a fragmented industry with no clear leader.
- Buyer Power – The threat of buyer power is high when there are fewer buyers than suppliers, or lower when demand is less than supply. Any firm producing a B2B good or service is susceptible to this risk if there is extreme reliance on a single buyer, such as a chipset manufacturer that is one of several vendors for a much larger company that integrates, markets, and distributes.
- Competitive Rivalry – The threat of competitive rivalry is high when a market becomes saturated and homogenous firms compete based on price. This threat is especially high when industries have players that begin engaging in price wars despite originally competing through differentiation in niche markets.
Mobile App Portfolio Strategy:
The Lean Enterprise approach to mobile solutions can take competitive strategy to the next level. At the core of any firm, however large, a very small number of key processes are the “heart” of the value created. Knowing and nurturing these core processes drives the competitive advantage of the firm – the output may be similar, but the throughput must become unique in the industry and difficult for competitors to copy.
To effectively compete in today’s economy, the core value creation processes must be proprietary and continuously improved. Applying Lean Enterprise Kaizen – continuous improvement – through mobile solutions will raise barriers to entry, increase operational effectiveness, and shift bargaining power in your favor. Pressure from each of the Five Force’s can be reduced:
- Minimizing the Threat of New Entrants – Investment in a mobile-first approach to Lean Enterprise Kaizen will not only raise barriers to entry against new competitors, it will also create learning curve disadvantages against existing rivals that are no longer as efficient or effective. Read more on Lean Principles for Agile Stakeholders.
- Economies of Scale – As your mobile portfolio begins standardizing work, level-loading process blocks, and driving Just in Time operations, the cost of operations will drive down. The goal will be to reach Minimum Viable Production – doing more of the high-margin activities that differentiate your organization while standardizing the work, focusing the worker, and reducing takt time.
- Technology Protection – The core processes at the heart of your competitive strategy will only provide competitive advantage so long as they remain proprietary, consistent, and scalable. Any business has non-core processes that will benefit from off-the-shelf solutions (i.e. don’t reinvent payroll, several providers specialize in that). By identifying a key process that can be transformed, protected, and optimized, higher revenue and margins, better leadership proprioception, and instant data access will disrupt the industry in your favor.
- Learning Curve Disadvantage – Although adoption rates for mobile devices has never been higher and companies everywhere are investing heavily in mobile, whether responsive or optimized web, native apps, or hybrid, very few companies are focusing on process transformation and even fewer on proprietary enterprise solutions. This gives a multiplicative affect to the competitive advantage driven by an enterprise app portfolio: competitors will need to learn what you do differently, how you built an enterprise app portfolio, and adopt a prioritization of disruption and transformation just to keep up.
- Minimizing the Threat of Substitution – Threat of substitution is minimized through differentiation and quality assurance. To the extent a product or service is perceived as unique and consistently valuable, the price elasticity of demand can be manipulated in your favor. Mobile apps can facilitate the role of your core processes to this end:
- Differentiation – streamlining processes that impact consumers will set you apart as an early adopter. Maintain direct communication, make data instantaneous. The consumer is becoming more sensitive to time-to-gratification. Mobile solutions can remove every time a consumer-facing employee turns their back, puts a user on hold, or walks to a back office. This turns sales reps into consultants, fully empowered to get the right product in the consumer’s hands with minimal time, confusion, or hassle.
- Quality Assurance – For both internal operations and consumer interaction, mobile solutions establish an intuitive guided workflow that standardizes the work to be done, focusing interaction on small batches of the overarching process. Through Business Intelligence analytics driven by the application itself, key insights into bottle necks are simple to find. Furthermore, when kaizen and “standard work” are facilitated by the tools built to make the employee’s work faster and more enjoyable (rather than a process document and managerial oversight) updates to the core process are implemented as part of updates to the app portfolio. This is more than MDM version control, it is version control for process transformation.
- Minimizing the Threat of Supplier Power – The threat of supplier power is high when there is resource or information asymmetry. Real-time data, and becoming a firm that demands it, shifts this balance. You will have the freedom to determine whether you “put all the cards on the table” or maintain an information asymmetry of your own. Knowing yourself and your suppliers with real-time data as it impacts your core processes will keep supplier power over resource prices at bay.
- Minimizing the Threat of Buyer Power – Unless you have exclusive access to a resource or protected rights to intellectual property, the only way to reduce the threat of buyer power is to diversify your revenue stream across a larger portfolio of consumers, whether product or service, B2B or B2C. If your current buyer portfolio is skewed to a small number of large purchasers, streamlining your core processes, standardizing the work, and maximizing (operationally efficient) differentiation will provide a repeatable, scalable business model. If you’re contractually obligated not to serve additional buyers, process improvement efforts should focus on heijunka (level loading) and delayed differentiation. The ability to maintain operational efficiency despite the ebb and flow of suppliers and buyers will insulate against the threat they pose.
- Minimizing the Threat of Competitive Rivalry – Direct competition through pricing wars kills margins industry-wide. To any extent “coopetition” can occur, margins can remain healthier for everyone. Each player positions themselves in the industry such that they compete for a specific market – Player A competes for the price-sensitive, Player B for the luxury experience, Player C for a reputation for the highest quality. Across a large geographic region, these three strategic positions can be focused territorially. Every mobile app in your portfolio is a tool with a specific purpose. Every tool has one number that defines it: Gross Revenue, Conversion, Items Per Ticket, EBITDA. Mobile app solutions need to maintain laser focus on the strategic position you intend to maintain and the one number that indicates if your solution is succeeding:
- Competing on Price – Whatever your industry sells, part of the market skews more price-sensitive. If your position in your strategic landscape is focused on low costs, your focus for mobile enterprise solutions should focus increasing operational effectiveness. The goal is to maintain current price and revenue increasing gross margin. This is especially true if your industry is already in a state of no-growth, zero-sum competition.
- Competing on Quality – Every product or service has quality as a perception of value created. For a car, this may mean low maintenance or high safety ratings. Competing on quality is one form of differentiation and pricing should be higher than price-based competitors. Mobile solutions for these enterprises should focus on real-time analytics, providing transparency to management and the market into actual quality scoring. This “dashboard” is really a marketing tool, whether it is aimed at your executives, investors, or consumers. The other side of this solutions should be process analysis and notification, making any part of the workflow capable of automatically alerting someone that quality is at risk. For more on the fundamental principles of “autonomation”, the Toyota Production System is the best introduction.
- Competing on Luxury – Every industry has conspicuous consumption. For products, these are the premium buyers and early adopters. For services, this is the “concierge treatment”. Typically, you’re combining both tactics when competing on luxury – creating the most pampered experience for the luxury consumer. Mobile solutions in this enterprise space should focus on enabling maximum attention to the consumer, and assist in consistency of the consultative nature of the employee workflow.
This high-level overview of how to apply Porter’s Five Forces to your plans for Enterprise Mobile Solutions should be a conversation starter. If you specific questions about your industry context, target market, or what custom enterprise solution would be right for you, reach out at AndrewThomasKeenerMBA@gmail.com